Feature Article

Will the U.S. Mobile Market be Disrupted like Japan, France?

Opinions vary widely on whether Softbank can disrupt the U.S. mobile market in the way Softbank changed the Japanese mobile market. One should not discount a competitor that already has disrupted a major mobile market, as Softbank has done.

Others might argue that Softbank does not appear to have as strong a uniqueness factor as it tackles the U.S. market, though. Softbank long has innovated around software, but also had a significant advantage in Japan, namely an exclusive deal to sell the Apple iPhone in the Japanese market.

Softbank will not have that advantage in the U.S. market. So Softbank will be looking for some other distinctive advantage it can leverage, aside from the likely effort to disrupt retail pricing.

Count STL Partners as among the observers who think Softbank just might have a shot at success, based on history.

Japan used to be a mobile market with two serious competitors, high ARPUs and margins, and three laggard players that nobody took too seriously, STL Partners says.

France’s mobile market had three operators, a highly tolerant regulator, and high margins.

The Japanese and French markets have both been disrupted through the entry of low-cost competitors offering substantial price reductions, and in Japan’s case the disruptor was Softbank.

“The scene appears set for a disruptive play” in the U.S. market, STL Partners believe.

In Japan, back in 2006, when Vodafone sold its Japanese operation to Softbank, the mobile market was relatively stable. NTT Docomo and KDDI clearly dominated the market, while three much smaller mobile operators, including Softbank, were struggling to find profitable long-term roles or at least market niches.

That doesn’t sound too dissimilar from the U.S. market. By most measures, Softbank now has become a strong number-two supplier in the Japanese market, and is growing much faster, in net customer additions, than either NTT DoCoMo or KDDI.

The point is that market disruption, even in a highly-stable developed market, appears possible. And while Softbank likely will seek some way to differentiate, price is likely to play a key role. And there actually is evidence that a “low price alone” strategy can disrupt a market.

In France, three mobile operators dominated the market. That was before Illiad’s Free entered the market, seriously disrupting prevailing price levels.

Nothing can be assured when Softbank launches its expected assault. But the potential for near term financial havoc is clear. Keep in mind that Softbank is used to operating with lower profit margins than its established competitors. That should be a factor when Softbank attacks the U.S. market as well.